If you are wanting to gain exposure to the tech sector following this month's selloff, then it could be worth listening to what Bell Potter is saying about one ASX 200 tech stock.
That's because the broker believes that recent weakness has created a compelling buying opportunity for investors.
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Which ASX 200 tech stock?
The stock in question is Catapult Sports Ltd (ASX: CAT).
On Tuesday, the sports technology company's shares crashed 12% lower to $4.82 following the release of its half year results.
It is worth noting that Catapult's results were strong and, like TechnologyOne Ltd (ASX: TNE), its shares were sold off despite revealing earnings ahead of guidance.
While this is disappointing for shareholders, Bell Potter thinks that it has created a buying opportunity for non-shareholders.
Big potential returns
Speaking about its performance during the first half, Bell Potter notes that its margins were stronger than expected. It said:
1HFY25 management EBITDA of US$9.7m was 2% above our forecast of US$9.5m and also above the US$9.0-9.5m guidance range. The slight beat was driven by a higher margin than we forecast (14.4% vs BPe 14.1%). Only notable difference in the result was lower statutory EBITDA than we forecast (US$9.0m vs BPe US$11.2m) which was driven by acquisition related costs of US$1.9m which we had not provided for. Cash at 30 September was US$11.3m and the company now has no debt. There is, however, US$11.2m of deferred/contingent consideration related to Perch which will be satisfied by the issue of equity.
While the broker has trimmed its valuation to reflect a de-rating in the tech sector this month, it still sees considerable upside for investors over the next 12 months.
According to the note, the broker has retained its buy rating on the ASX 200 tech stock with a reduced price target of $6.50 (from $7.50).
Based on its current share price, this implies potential upside of approximately 35% for investors between now and this time next year.
Commenting on its buy recommendation, Bell Potter said:
We have reduced the multiple we apply in the EV/Revenue valuation from 9x to 8x due to the recent de-rating of the tech sector and the multiples being applied. There is, however, no change in the 8.1% WACC we apply in the DCF. The net result is a 13% decrease in our PT to A$6.50 which is >15% premium to the share price so we maintain the BUY recommendation. We continue to see strong double digit growth in the core business and believe this will be augmented by the cross-sell opportunity from the IMPECT acquisition as well as potential expansion into other sports.
